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First-Half 2014: Sopra Turns in a Solid Performance

Regulatory News:

At its meeting yesterday chaired by Pierre Pasquier, Sopra’s (Paris: SOP) Board of Directors approved its financial statements for first-half 2014. The Statutory Auditors conducted a limited review of the interim consolidated financial statements.

  • Revenue represented total growth of 9.3% and organic growth of 4.5%
  • At 7.2%, operating margin on business activity improved by 100 basis points
  • Annual targets confirmed
Key income statement items (€m / %)
    H1 2014       H1 2013       Change

2014/2013

Revenue   722.3     661.0    
organic growth(1) + 4.5%
Operating profit on business activity(2) 52.2 7.2% 41.3 6.2%
Profit from recurring operations 48.4 6.7% 37.5 5.7%
Operating profit 40.6 5.6% 63.6 9.6%
Net profit - Group share   22.2   3.1%   50.2   7.6%    
 

1 Change calculated at constant exchange rates and group structure.
2 Operating profit on business activity corresponds to profit from recurring operations before expenses related to the bonus share allotment plan, stock options and amortisation charges for allocated intangible assets.

Revenue for the first half of 2014 was €722.3 million, representing total growth of 9.3% and organic growth of 4.5%. Following an excellent first quarter, the Group maintained its strong start to the year, recording revenue of €363.9 million for the second quarter, i.e. total growth of 7.1% and organic growth of 4.7%.

Operating profit on business activity for the half-year period was €52.2 million, corresponding to a margin of 7.2%, a 100 basis point improvement over the first half of 2013.

Profit from recurring operations was €48.4 million, representing a margin of 6.7%, after €1.4 million in expenses relating to the bonus share allotment plan (PAGA) and stock options, as well as amortisation of allocated intangible assets in the amount of €2.4 million.

After other operating expenses, which came to €7.8 million in total, of which €4.6 million were attributable to the tie-up with Steria and €3.2 million arising from restructuring, operating profit came to €40.6 million, representing a margin of 5.6% (first-half 2013: 9.6%). It should be noted that in the first half of 2013, the Group recognised negative goodwill with respect to the acquisition of HR Access. Without that negative goodwill, last year’s margin would have been 6.3%.

Net financial items came out to an expense of €4.6 million. Total tax expense was €14.3 million.

The share of net profit from equity-accounted associates, corresponding to Sopra’s 25.61% shareholding in Axway, was €0.5 million.

Net profit was €22.2 million, representing a net margin of 3.1%.

Vincent Paris, Chief Executive Officer, commented: “Sopra turned in a solid performance for this first part of the year, highlighted by growth and improved profitability. The trust that our clients place in us enables the Group to move forward and outperform in an economic environment that remains very challenging. At this point in the year, we are in a position to confirm all our annual targets.”

Comments on business activity for Consulting & Services

In France, first-half revenue amounted to €393.3 million, representing total growth of 3.2% and organic growth of 2.5%. Amidst a generally lacklustre economic environment, the Group saw its pace of growth pick up in the second quarter, buoyed by a high number of contracts renewed with key accounts. While budgets changed only marginally, Sopra generated growth by gaining market share. The public sector maintained its wait-and-see attitude, but demand from the financial services and manufacturing sectors was higher. Operating profit on business activity came in at €32.7 million, representing a margin of 8.3% for the period, compared with 7.5% in 2013.

In Europe, revenue was €129.9 million, representing total growth of 5.7% and organic growth of 4.4%. Operating profit on business activity totalled €2.7 million, representing a margin of 2.1% for first-half 2014, compared with 2.8% for the same period in the previous financial year. In Spain, Belgium and Switzerland, growth and profitability came in as hoped and the United Kingdom proved resilient, while adverse economic conditions weighed on the performance of the Group’s Italian and German subsidiaries.

Comments on business activity for Solutions

Sopra Banking Software generated first-half revenue of €120.7 million, representing total growth of 12.0% and organic growth of 1.6% for an operating margin of 6.1% (€7.4 million). These results reflect a strategy that reconciles, on the one hand, the investment effort needed to bring the subsidiary’s offering to the market and, on the other, its target of double-digit profitability over the full year. While research and development costs and the deployment of sales teams held back profit margins in the first half of the year, a number of major projects involving substantial licence sales at the end of the year should allow the subsidiary to achieve its annual target of an operating margin of over 10%.

The “Other Solutions” division, which combines revenue generated by the Group’s human resources and property management solutions, recorded half-year revenue of €78.4 million, representing total growth of 59.0% and organic growth of 22.3%. The margin of 12.0% validates the Group’s strategy, which was recently reflected in the acquisition of HR Access Service (see press release dated 30 June 2014), aimed at developing ancillary services to complement its solutions offerings.

Financial position

Equity was €361.7 million. Net debt at 30 June 2014 was €197.3 million.

Net bank debt, which excludes the profit-sharing liability of €27.1 million, was €170.2 million. Consequently, the net debt to equity ratio excluding employee profit sharing for the calculation of bank covenants came to 47.0%.

The Group’s financial position therefore remains excellent and its debt is perfectly compliant with its banking covenants.

Outlook

Today, Sopra is able to confirm the annual targets that were fixed within the framework of its independent enterprise project, namely:

  • organic growth of between 3% and 5%,
  • improvement in the operating margin on business activity,
  • net debt at year-end of between €130 million and €160 million, taking into account the acquisition of HR Access Services and the subscription to the CS convertible bond issue.

Offre Publique d’Échange (Public Exchange Offer) on Groupe Steria

The proposed tie-up between Sopra and Groupe Steria is making good progress: on 17 July 2014 the AMF confirmed the closing date for the public exchange offer (set at 30 July 2014) following the European Commission's decision on 14 July authorising the tie-up.

The shareholders of Groupe Steria have had, as of 26 June 2014 (opening date of the public exchange offer), the opportunity to tender their shares to the public exchange offer and thus to contribute to the creation of a European leader in digital transformation.

Financial calendar

Friday, 25 July 2014 at 15:30: presentation of the interim financial statements at the Shangri-La Hotel in Paris.

Thursday, 30 October 2014 before market: publication of third-quarter revenue.

Disclaimer

This press release has been disseminated for information purposes only and does not constitute and should not be construed as constituting an offer to acquire Steria or Sopra shares. The OPE is being carried out exclusively in France and participation in the OPE is subject to legal restrictions outside France. This press release is therefore not intended to be disseminated in countries other than France and it is not addressed, directly or indirectly, to persons subject to such restrictions. Sopra and Steria disclaim all liability in the event of a breach by any person of these legal restrictions applicable outside France.

This document is a free translation into English of the original French press release. It is not a binding document. In the event of a conflict in interpretation, reference should be made to the French version, which is the authentic text.

Annexes

Consolidated income statement (€m)
  H1 2014   H1 2013
                 
Revenue 722.3   661.0  
Staff costs - Employees -498.8 -455.4
Staff costs - Contractors -48.3 -53.1
Operating expenses -112.7 -101.2
Depreciation, amortisation and provisions   -10.3       -10.0    
Operating profit on business activity   52.2   7.2%   41.3   6.2%
Expenses related to stock options and related items -1.4 -1.4
Amortisation of allocated intangible assets   -2.4       -2.4    
Profit from recurring operations   48.4   6.7%   37.5   5.7%
Other operating income and expenses   -7.8       26.1    
Operating profit   40.6   5.6%   63.6   9.6%
Cost of net financial debt -3.2 -2.4
Other financial income and expenses -1.4 -
Income tax expense -14.3 -13.4
Share of net profit from equity-accounted companies   0.5       2.4    
Net profit before profit from discontinued operations   22.2   3.1%   50.2   7.6%
Profit net of tax from discontinued operations   -       -    
Net profit   22.2   3.1%   50.2   7.6%
Group share 22.2 50.2
Minority interests - -
 
Simplified balance sheet (€m)                  
            30/06

2014

  31/12

2013

                   
Goodwill 344.0 317.5
Allocated intangible assets 49.1 51.4
Other fixed assets 61.5 56.7
Equity-accounted investments 117.5 118.8
Fixed assets 572.1 544.4
 
Trade accounts receivable (net) 461.2 442.4
Other assets and liabilities -474.3 -474.3
Operating assets and liabilities             -13.1   -31.9
ASSETS + WCR             559.0   512.5
 
Equity 361.7 357.9
Net financial debt             197.3   154.6
CAPITAL INVESTED             559.0   512.5
 
Net debt (€m)
      30/06

2014

      30/06

2013

                 
Net debt at beginning of period (A)       -154.6       -204.1
Cash from operations before cost of net debt and tax 52.9 39.9
Income taxes paid -13.5 -15.4
Change in working capital requirements       -49.4       -50.9
Net cash used in operating activities       -10.0       -26.4
Net cash used in investing activities -11.0 -8.3
Net interest paid       -3.2       -2.4
Available net cash flow       -24.2       -37.1
Impact of changes in scope -20.3 44.2
Financial investments - -0.9
Dividends - -20.2
Dividends collected from equity-accounted associates 2.1 1.9
Capital increases in cash - 0.1
Other changes       -1.1       0.5
Total net change for the period (B)       -43.5       -11.6
Impact of changes in foreign exchange rates (C )       0.8       -0.6
Net debt at period-end (A+B+C)       -197.3       -216.2
 
Performance by region in first-half 2014 (€m / %)
    Revenue  

Operating

profit on

business

activity

 

Operating

margin on

business

activity

 

Total

growth

 

Organic

growth

France   393.3   32.7   8.3%   3.2%   2.5%
Europe (excluding France) 129.9 2.7 2.1% 5.7% 4.4%
United Kingdom 43.6 2.3 5.3% 3.1% -0.5%
Spain 44.3 2.1 4.7% 17.2% 17.2%
Italy 20.9 -0.4 -1.9% -8.3% -8.3%
Other countries(3) 21.1 -1.3 -6.2% 5.5% 5.5%
Sopra Banking Software 120.7 7.4 6.1% 12.0% 1.6%
Other Solutions   78.4   9.4   12.0%   59.0%   22.3%
Sopra Group   722.3   52.2   7.2%   9.3%   4.5%
 

3 Others countries: Germany, Belgium, Switzerland

Changes in equity (€m)                    
                    €m
Position at 31 December 2013                   357.9
Net profit - Group share 22.2
Distribution in cash (ordinary) - 22.6
Acquisition or disposal of treasury shares - 0.6
Share-based payments 2.1
Actuarial differences - 2.3
Change in financial instruments 0.3
Translation adjustments 4.5
Other movements                   0.2
Position at 30 June 2014 361.7
 
Revenue breakdown by business segment (%)
                H1 2014   2013
Financial Services               36%   33%
Services/Transport/Utilities 20% 20%
Public Sector 17% 16%
Manufacturing 14% 16%
Telecoms & Media 8% 10%
Retail               5%   5%
100% 100%
 
Staff Changes                    
                H1 2014   2013
Staff - France 10,765 10,230
Staff - International               6,395   6,060
Total 17,160 16,290
 
Staff at beginning of period 16,290 14,310
Integration of acquired companies 130 900
Net additions to staff               740   1,080
Total 17,160 16,290
 
 
Revenue breakdown by region (%)                
                H1 2014   2013
France 66% 67%
Europe & rest of world               34%   33%
Total 100% 100%
 
 
Revenue breakdown by offering (%)                
                H1 2014   2013
Consulting & Integration 72% 76%
Software development               28%   24%
100% 100%
 

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